Kyusung Lee Attorney at Law

Attorney Kyusung Lee | Korean Business Law | English Contract Review

For foreign companies entering the Korean market—or already maintaining partnerships in Korea—English-language contracts are at the center of risk management.

Many overseas businesses assume that drafting a contract in English ensures compliance with international norms. In reality, numerous disputes arise because certain clauses conflict with Korean law or do not align with Korean commercial practices.

One critical point: when a dispute arises with a Korean partner, the mere fact that a contract is drafted in English does not make the terms more favorable to the foreign company.

Below are the contract clauses most frequently mishandled by foreign companies, and why these issues become problematic under Korean legal practice.

The 7 Most Problematic Contract Clauses

1) Governing Law  : English does not mean international law applies automatically

A common misconception is that an English-language contract is automatically governed by international norms or U.S. law. Depending on the wording of the governing law clause, Korean law may apply—or the law of another jurisdiction entirely.

A frequent issue: foreign companies sign a contract provided by their Korean partner, only to discover later that governing law has been set as Korean law. When Korean law applies, statutes including the Civil Act, Commercial Act, and Electronic Commerce Act may all affect interpretation and enforcement in ways foreign companies cannot anticipate.

Careful evaluation of which governing law to choose—and the practical implications of that choice—is essential to reducing future disputes.

2) Jurisdiction  : Where will litigation or arbitration take place?

The jurisdiction clause determines which courts or arbitration institution will have authority if a dispute arises. Foreign companies often treat this lightly, then later face significant costs.

For example: if a contract designates Korean courts as having exclusive jurisdiction while the foreign company is based in Europe or the United States, litigation must proceed in Korea—resulting in substantial burdens in attorney fees, document preparation, and witness examinations. Jurisdiction should be determined only after considering cost, enforceability, and potential language barriers.

3) Interpretation Language  : A critical clause in bilingual contracts

One of the most commonly overlooked clauses in bilingual agreements is the provision specifying which language version takes precedence in case of discrepancies.

Contracts drafted by Korean companies often state that the Korean version prevails. Contracts drafted by foreign headquarters typically designate English as the controlling language. Translation differences—sometimes subtle—can become a key issue in actual disputes. When reviewing bilingual contracts, it is crucial to check not only literal translation accuracy but also whether the substantive meaning remains consistent across both languages.

4) Exclusivity vs. Non-Exclusivity  : A clause that frequently causes disputes in the Korean market

Whether a partner has exclusivity fundamentally affects market entry and operational strategy. Disputes often occur when foreign companies grant exclusivity without clearly specifying conditions such as sales obligations or activity requirements.

Typical problem areas:

• Granting exclusivity without defining minimum purchase obligations
• Unclear duration or territorial scope of exclusivity
• Ambiguous authority for brand promotion, sales, or distribution

Because the Korean market is relatively small, exclusivity provisions must be drafted with great caution and detailed conditions.

5) Confidentiality (NDA)  : Standard boilerplate wording is rarely sufficient

NDAs are among the most commonly included clauses in English-language contracts. However, effective protection requires careful drafting.

Typical issues encountered by foreign companies:

• Definitions of ‘confidential information’ that are overly narrow or excessively broad
• Failure to specify the confidentiality period after contract termination
• Lack of procedures for returning physical materials such as prototypes or samples
• Ambiguous standards for damages in the event of breach

In Korea, proving an NDA breach is often more burdensome than expected. To mitigate disputes, companies should structure the NDA to reduce evidentiary burdens, define access restrictions clearly, and require traceable documentation.

6) Intellectual Property Rights  : Essential in development, content, or software cooperation

IP ownership is one of the most common sources of conflict when collaborating with Korean companies on development or service production.

Typical misunderstandings:

• Assuming that payment of development fees automatically assigns IP ownership
• Joint development without specifying ownership ratios
• Unclear scope of post-delivery maintenance or update obligations

Under Korean law, unless the contract expressly defines who owns copyrights, inventions, or designs, foreign companies may find themselves at a disadvantage in disputes.

7) Penalties / Liability Limitations  : Expectation gaps between Korean and foreign companies are substantial

Foreign companies often overlook the significance of damage-related provisions. Korean companies frequently require not only compensation for actual damages but also penalties such as delay fees or liquidated damages, and may impose broad liability obligations.

Foreign companies generally prefer to limit liability, exclude indirect damages, and define caps on liquidated damages. However, these protections are often weakened or removed during negotiations with Korean partners—resulting in unexpectedly large liabilities in actual disputes.

What Foreign Companies Must Understand About Doing Business in Korea

English-language contracts alone do not guarantee legal safety in Korea. In the event of a dispute, the decisive factors include not only the contract text itself but also: the compatibility of the contract with Korean law, local commercial practices, and how Korean courts or arbitral tribunals interpret the provisions.

Critical clauses—such as governing law, jurisdiction, exclusivity, and IP ownership—are structural elements that directly affect corporate risk and cost exposure.

I provide comprehensive support tailored to your business model, transaction structure, and industry characteristics—from drafting to revising English-language contracts, as well as identifying and mitigating legal risks. Both short-term advisory services and ongoing legal support are available.

Please feel free to reach out whenever needed.

< Legal Advisory – Attorney Kyusung Lee >

☎ Phone: 02-6264-7604

📩 Email: kyusungii@gmail.com

🌐 Website: http://www.kyusunglee.com

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